On January 1, 2017, Diamond Company purchased equipment for P5,600,000. The equipment had an 8-year useful life and residual value of P800,000. The entity depreciated the equipment using the straight line method. In August 2020, the entity questioned the recoverability of the carrying amount of the equipment.
On January 1, 2017, Diamond Company purchased equipment for P5,600,000. The equipment had an 8-year useful life and residual value of P800,000. The entity depreciated the equipment using the straight line method. In August 2020, the entity questioned the recoverability of the carrying amount of the equipment.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Problem 30-19 (AICPA Adapted)
On January 1, 2017, Diamond Company purchased equipment
for P5,600,000. The equipment had an 8-year useful life and
residual value of P800,000. The entity depreciated the
equipment using the straight line method.
In August 2020, the entity questioned the recoverability of the
carrying amount of the equipment.
On August 31, 2020, the discounted expected net future cash
inflows related to the continued use and eventual disposal of
the equipment total P3,500,000.
The fair value less cost of disposal of the equipment on such
date is P3,000,000.
After any loss on impairment has been recognized, what is the
carrying amount of the equipment?
a. 3,500,000
b. 3,400,000
c. 3,000,000
d. 2,600,000
888
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